The best way to avoid choosing between a late bill and a predatory cash advance loan is to be prepared ahead of time.
There’s nothing quite like that sinking feeling in your gut when you realize something bad’s about to happen. We all remember back in school realizing that we had a test we forgot to study for. But in the real world, that cold knot of fear usually comes with some extra consequences attached.
For instance: What do you do when you have an upcoming bill that you don’t have the funds to cover. The consequences of paying a bill late (or not paying at all) can be pretty dire for your credit rating.
On the other hand, a lot of your options for getting that quick cash to make your payment can leave you burdened with an extremely high interest rate and trapped in a predatory cycle of debt.
Hopefully, you have friends or family who can help you out in situations like these. But if you don’t have that option, you’re going to have to make some difficult choices. Is it worth getting a risky cash advance if it means paying a bill on time?
There are two types of cash advances.
If you’re going to be late on a bill, a cash advance loan might seem like a good way to resolve the situation. But is it?
A true cash advance loans are acquired through your credit card. (Why do we say “true” cash advance loans? More on that below.) When you take out a credit card cash advance, the amount that you withdraw is added to your balance, just like a normal purchase.
However, there are some key ways in which credit card cash advances and regular credit card transactions differ.
For one, cash advances come with higher interest rates than regular purchases on your card. And whereas standard transactions give you a one-month grace period before interest starts accruing, cash advances start accruing interest immediately. Plus, cash advances often carry other fees.
Now to those not-so-true cash advance loans: Many payday lenders and other predatory companies will use the term “cash advance” to refer to the no credit check loans they’re offering.
This is not great, because payday loans (and other types of predatory bad credit loans) are much more dangerous than standard cash advances. They come with extremely short payment terms and APRs that can average almost 400% a year—or even more!
Paying a bill late can hurt your credit and your quality of living.
Payment history is the single most important factor in your credit score. It accounts for 35% of your total, more than any other category. (Your total balances owed is in second place at 30%.) Lenders, landlords, and utility companies really like to see that you pay your bills on time before they lend, rent, or provide service to you.
So if a late or unpaid bill ends up on your credit report it can have an extremely negative effect on your score. It might just be the single most harmful thing you can do to your credit rating.
And then there are the other effects of paying a bill late. Namely, you can have key services cut off or important possessions repossessed.
Falling behind on your electricity or gas bill can lead to your provider shutting off service. No heat and no electricity? No thank you!
And what about falling behind on your auto loan payments and having your car repossessed? Would you be able to get to work or your kids to school? These are consequences that can really spin out of control.
In the end, it’s really a matter of degrees. If you’re only going to be a little late on a bill, and you can get away with a late fee and no derogatory marks on your credit report, then that is probably your best option.
On the other hand, if you’re going to be really late on your bill, then taking out a cash advance loan—especially if its a cash advance on your credit card—is preferable.
It’s just not something you want to do too frequently; you don’t want that high-interest debt stacking up. But as a one-time solution, it’s the best of your bad options.
Then again, you can probably avoid situations like this entirely if you take proper precautions ahead of time.
Get organized and don’t procrastinate.
We’ve been talking about late bills that you see coming. But if you’re not organized, you may not see the late bills coming at all.
“Debt has a way of spiraling out of control,” warns Nate Masterson, finance manager for Maple Holistics. “So, if you already know you are going to be late with a certain bill, that’s okay. You just need to make sure that you don’t accumulate more bills in the process. It can happen very rapidly sometimes and catch you completely off guard if you are not paying attention.
“The best way to manage bills is to get organized about them. If you don’t have a standing order at your bank, you need to be on top of things. In fact, even if you do, you need to be on top of things, because those are all run by computers and mistakes are made all of the time. Since you probably don’t want to be on the receiving end of a huge error—and not even know about it—it is best to keep your finger on the financial pulse of your life.”
And if you do have the means to pay off your bills, pay them as soon as you can, even if it might hurt a little.
“Don’t be a financial procrastinator,” advises Leslie H. Tayne Esq., Founder and Head Attorney at Tayne Law Group. “Instead of putting your credit card bill in a pile on your desk, open it up right away and make a payment. There’s no sense in waiting until a later time to pay it off; you’re going to have to pay it eventually, and making a payment as soon as you receive the bill will ensure you don’t miss the due date. It might take a bit of time to make this a habit, but your finances will be much better off once you establish making payments right away.”
But sometimes trying to pay your bills hurts more than a little, especially when you have too many bills and not enough funds to cover them.
Learn how to prioritize your payments, and be prepared to cut back.
Most companies that bill regularly—lenders, credit card companies, utilities—won’t immediately report a late payment to the credit bureau. Sure, they’ll charge you a late fee, and they might even up your interest rate, but those are small prices to pay when compared to a decimated credit rating.
Before you figure out how you’ll deal with the late bills, it’s important to figure out which bills hold the biggest consequence for late payment.
“Understand that some bills accumulate late fees,” Masterson explains. “This is crucial, and it can help you to better prioritize your debt payments. You should always aim to get rid of that which can end up harming you sooner. If late fees on a certain bill are insanely high, do what you can to take care of it, even if it comes at the expense of another bill, which does not accumulate late fees, or which doesn’t have a fee which is as high.
“Depending on the size of the bill—and its lateness—you are going to have to get realistic about your expenses. If this is a bill which can end up hurting your credit standing, or affect your future in some serious way, you may need to seek out other options. Always do your research, keep a level head, and try not to let stress and anxiety guide you through that process. That is a recipe for disaster.
“If you are looking to extricate yourself from the debt spiral, you’ll need to sacrifice some things. This is a harsh truth, but you cannot bank on receiving a large chunk of money or a bonus. Even if you have something like that coming your way, you need to work on a ‘Plan B’.”
Even if you pay a bill late, that doesn’t mean “Game Over.”
OK, so some of your bills are going to be late. Now, what can you do about it—especially if you don’t want to risk something like a cash advance loan? Tayne lays out the steps you can take to lessen the pain of a late bill:
“Request a due date change: If your due date is putting you in a compromising financial position and it’s not aligning with your budget or pay schedule, many credit card companies will be willing to assist in moving the date. If you are consistently making late payments, it would be in your best interest to go to a more suitable date. Not only are you incurring late fees and interest, but you’re also causing your credit score to take a dip. A due date change can make all the difference in keeping you financially healthy.
“Ask for a credit of a late payment fee: If you are a good customer with a long and responsible history with your credit card company, then they may be willing to let a little hiccup of a late payment slide. If you have consistently been late, they may not give you credit for all the late fees, but if you offer to sign up for automatic payments as an exchange for late fee removal, you may be successful in getting your credit. If you show good faith in trying to improve your payment record, you may be able to get in the good graces and be accommodated.
“Get on the phone: If your servicer hasn’t called you, then call them. You want to be on your creditor’s ‘good side.’ Explain to them the situation and what they recommend so you don’t miss another payment. When you speak to your lender, consider also asking if your missed payment has caused any late charges or fees on your account. If this happens, you might want to cut back on some of your non-essential expenses to help you pay this down.”
Late bills are never going to be an ideal situation. But follow these tips and you can give yourself at least one good option for getting out of trouble.
Nate Masterson is the Marketing Manager for Maple Holistics (@MapleHolistics). Nate specializes in Digital Marketing and SEO and works as a freelance marketing consultant for small businesses in his free time. Nate is from Riverdale, NY.
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